Mr MELHAM (Banks) (14:59): My question is to the Minister for Defence. Will the minister update the House on the progress of the construction of three new air warfare destroyers?

Mr STEPHEN SMITH (Perth—Minister for Defence and Deputy Leader of the House) (14:59): I thank the member for his question.

As the House might recall, in 2007 the then Defence Minister, Brendan Nelson, now our ambassador in NATO, announced the acquisition of three Air Warfare Destroyers for the Royal Australian Navy.

This government, in the Defence White Paper 2009, confirmed that we would proceed with the acquisition of these three new ships, and they are currently due for delivery from December 2014.

When complete, the Air Warfare Destroyer will be one of the more capable types of warship of its size in the world.

They provide advance air defence against missiles and aircraft for self-protection, as well as for other ships and for land forces in coastal areas.

The total cost of the project is about $8 billion, with a significant benefit for local Australian industry.

Overall, the estimate is that around 50 per cent of the total value of the project will be spent in Australia.

The ships are being constructed in 90 separate blocks, which are being fabricated in three separate Australian shipyards: in Adelaide at the ASC shipyard, in Melbourne at the BAE Systems shipyard and in Newcastle at the Forgacs shipyard. They will ultimately be assembled in Adelaide.

Today, the Minister for Defence Materiel and I announced a reallocation of work for that project.

This is necessary because, in addition to the Air Warfare Destroyer work, the Melbourne BAE Systems shipyard is also building blocks for the superstructure for the two new Landing Helicopter Dock ships due for delivery in 2014 and 2015.

The Melbourne shipyard is stretched, working on two major projects at the same time.

The government, the Air Warfare Destroyer Alliance and BAE Systems takes the schedule for these two very important projects most seriously.

In February of this year, BAE Systems advised the Air Warfare Destroyer Alliance of potential schedule delays.

As a consequence of that, I met with BAE Systems United Kingdom in London in March of this year.

The Minister for Defence Materiel speaks regularly to the CEO of BAE Systems Australia, Jim McDowell, and on this particular matter has met and spoken with him on a number of occasions in recent months.

Over the last few months the Air Warfare Destroyer Alliance and BAE Systems have been working very closely to prepare options to improve the production outcomes, and earlier this month BAE Systems presented the Alliance with a plan to adjust this workload on the Air Warfare Destroyer project.

The advice of the alliance was that if no action were taken to relieve the pressure on the Melbourne shipyard the first ship would be two years late.

As a consequence of these discussions and that possible outcome, the Air Warfare Destroyer Alliance, with the support of BAE Systems and with the support of the Minister for Defence Materiel and I, propose to take the following action.

Firstly, up to 13 steel blocks will be reallocated among the three Australian shipyards in Adelaide, Melbourne and Newcastle and up to five blocks will be reallocated to Navantia in Ferrol, Spain.

This action will reduce the schedule risk for both this project and the Landing Helicopter Dock ships project.
The Air Warfare Destroyer Alliance has advised that this action will reduce the estimated delay of the completion of the first ship by up to 12 months and all three Air Warfare Destroyers by the same period. It will also reduce the pressure on BAE Systems to complete its work on the Landing Helicopter Dock ships.

Importantly, I am advised that there will be little, if any, adverse impact on the current Melbourne BAE Systems shipyard workforce, which is around 300, as a result of this decision.

That workforce will continue to have the opportunity to work on the AWDs as well as the Landing Helicopter Docks, and that is a good thing for Melbourne as it is a good thing for Adelaide and Newcastle.